The 2025 Spring Budget has arrived, bringing both opportunities and challenges for Construction Industry Scheme (CIS) contractors. With sweeping changes to National Insurance, VAT thresholds, and business taxes, the construction sector faces a shifting financial landscape.
Whether you’re a self-employed subcontractor, a limited company director, or working through an umbrella firm, understanding these reforms is crucial for maximising your earnings and staying compliant. From tax cuts to stricter enforcement, the blog will explore what these changes mean for your take-home pay, business expenses, and long-term financial planning.
Key takeaways for CIS contractors
- National Insurance – Increase of employer NI contribution rates.
- VAT threshold freeze – The VAT registration threshold remains at £90,000 until 2026.
- IR35 & off-payroll working – No major changes, but compliance remains strict.
- Construction Industry Scheme (CIS) updates – No major reforms, but HMRC continues tightening enforcement.
- Business tax & investment incentives – New allowances and reliefs for small businesses.
- Energy Support & Green Initiatives – Grants for energy-efficient upgrades in construction.
- Income tax & Minimum Wage changes – Fiscal drag and higher wage costs.
- Making Tax Digital (MTD) delays – Revised timeline for self-employed digital reporting.
Below, we explore each of these areas in detail, providing actionable insights for CIS contractors.
1. Increased Employer National Insurance Contributions:
Starting now, employers will pay a higher rate of National Insurance (15%, up from 13.8%) on their employees’ earnings that exceed a lower threshold of £5,000 annually (previously £10,000). This change will directly affect CIS contractors who are employed through umbrella companies or directly by their clients.
Impact on umbrella company employees:
For CIS contractors working via umbrella companies, the rise in employer National Insurance could potentially lead to a reduction in their net pay if the rates they are charged for assignments are not increased to cover this additional cost for the umbrella company.
Increase in Employment Allowance:
The Employment Allowance, which allows employers to reduce their overall National Insurance liability, has been increased to £10,500. Additionally, the previous limit on the total employer National Insurance bill to be eligible for the allowance (£100,000) has been removed. This increase could benefit some employers in the construction industry by lowering their overall National Insurance expenses.
2. VAT threshold frozen at £90,000 until 2026
Implications for CIS contractors
- Subcontractors nearing £90,000 turnover must register for VAT or risk penalties, unless the bulk of their work is zero-rated.
- VAT Flat Rate Scheme (FRS) remains beneficial for small contractors, offering simplified reporting.
- Domestic Reverse Charge (DRC) still applies to CIS-registered businesses, meaning contractors must account for VAT via HMRC rather than charging it directly.
Recommendation: Monitor your turnover closely—use accounting software to track VAT liabilities in real time.
3. IR35 & off-payroll working rules unchanged
No major IR35 reforms were announced, meaning:
- Public sector & medium/large private firms must still determine IR35 status.
- Small private companies (turnover < £10.2m, < 50 employees) remain exempt.
- Contractors outside IR35 can continue working via limited companies, paying Corporation Tax at 25% (for profits > £50k).
Compliance tips:
- Ensure contracts are IR35-reviewed by a specialist.
- If caught by IR35, consider umbrella employment for greater take-home pay.
4. CIS compliance: HMRC’s increased scrutiny
While no major CIS reforms were introduced, HMRC is:
- Ramping up compliance checks on contractors and subcontractors.
- Issuing penalties for late CIS returns (fines apply after the 19th of each month).
- Targeting CIS fraud, including false self-employment and underreported payments.
Key CIS rules to remember:
- Contractors must deduct 20% (registered subcontractors) or 30% (unregistered) from payments.
- Subcontractors can offset CIS deductions against their final tax bill.
- Monthly CIS returns must be filed by the 19th of each month.
What next:
- Ensure CIS registration is up to date.
- Keep detailed records of payments and deductions.
- Use HMRC’s CIS online service for faster processing.
5. Business tax changes & investment incentives
Full Expensing for Capital Investments (Permanent)
- Companies can claim 100% first-year relief on qualifying plant/machinery investments.
- Helps CIS contractors invest in tools, equipment, or vehicles.
R&D tax credit reforms
- Enhanced R&D relief for SMEs (now 86% deduction on qualifying R&D costs).
- Construction tech innovation (e.g., green building methods) may qualify.
Corporation tax rates (2025/26)
- Corporation Tax stays at 25% (Profits > £50k)
- Small profits rate (19%) applies if profits are under £50k.
- Marginal relief applies between £50k and £250k.
Implications for CIS limited companies:
- If operating via a limited company, plan dividends vs salary efficiently.
- Consider full expensing for equipment purchases.
6. Energy support & Green construction grants
The government announced:
- Boiler Upgrade Scheme extension (grants for heat pumps).
- ECO4 & Great British Insulation Scheme (funding for energy-efficient home upgrades).
- VAT relief (0%) on energy-saving materials (ESMs) for homeowners.
Opportunities for CIS Contractors:
- Specialising in green construction (e.g., insulation, heat pumps) could lead to more contracts.
- Check eligibility for grants if upgrading business vehicles/tools to eco-friendly alternatives.
7. Income Tax & Minimum Wage Changes
Income Tax Thresholds Frozen Until 2028
- Personal allowance (£12,570), basic rate (£12,571–£50,270), and higher rate (£50,271–£125,140) remain unchanged.
- Fiscal drag effect: Wage inflation may push more subcontractors into higher tax brackets.
National Living Wage Increase (April 2025)
- £12.00/hour for workers aged 21+ (up from £11.44).
- Impact: Labour costs may rise for contractors employing workers.
8. Making Tax Digital (MTD) Delayed Until 2026/27
- Self-employed & landlords earning >£50k must join MTD from April 2026.
- Those earning £30k–£50k must comply from April 2027.
- Those earning >£20k must comply from April 2028.
- CIS subcontractors should transition to digital accounting software (e.g., QuickBooks, Xero).
Preparation steps:
- Start using MTD-compatible software early.
- Digitise expense records to streamline reporting.
Final thoughts: How CIS contractors should prepare?
- Leverage NI Savings – Adjust your financial planning to benefit from lower self-employed NI.
- Monitor VAT closely – Ensure compliance if approaching the £90k threshold.
- Stay IR35-compliant – Review contracts annually to avoid penalties.
- Maximise CIS efficiency – File returns on time and keep meticulous records.
- Explore Green Grants – Diversify into energy-efficient construction for new revenue streams.
- Prepare for MTD – Adopt digital accounting tools ahead of the 2026 deadline.
The construction industry remains a cornerstone of the UK economy, and these budget changes reflect both support for small businesses and a push toward greater transparency. By staying informed and adapting swiftly, CIS contractors can turn these reforms into opportunities for growth.
Need help with CIS or tax planning? Consult an accountant who specialises in construction taxes.
